To Compensate for the Uncertainty of Future Interest Rates and the Fact

question 152

Multiple Choice

To compensate for the uncertainty of future interest rates and the fact that the longer the term of a loan the higher the probability that the borrower will default, the lender typically ________.

• A) charges a higher interest rate on long-term loans
• B) reserves the right to change the terms of the loan at any time
• C) includes excessively restrictive debt provisions
• D) reserves the right to demand immediate payment at any time

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Definitions:

Redistributing Income

The transfer of income from certain individuals or groups to others through mechanisms like taxation, social security, and welfare programs, aiming at reducing income inequality.

Tradeoff

An exchange where one quality or aspect must be given up in order to gain another quality or aspect.

Efficiency

The optimal allocation of resources to maximize the production of goods and services or the achievement of a given objective with the least amount of waste.

Equality

Having parity in terms of opportunities, rights, and social status.